Tuesday, September 6, 2016

Surely, you recall that Chicken Little once ran around
shouting that the sky was falling. Today, we have more adult versions of
Chicken Little: they are called experts. They especially like to forecast future calamities for the markets and the economy. They do so with wild abandon, even
though they are very often wrong.

Actually, it’s a good argument for free enterprise. Would
you want the economy to be run by so-called experts who try to make a name for
themselves forecasting the apocalypse?

Case in point: expert opinion universally agreed that if
British subjects voted to leave the European Union, the result would be: the
sky would fall. It has not turned out that way, so the experts will move on to
predict another catastrophe.

It’s
early, but data so far suggest the British decision to leave the European Union
could be another example of a recurring phenomenon: expert predictions of dire
consequences to political decisions that end up proving overheated.

Economists
are good at digging into the forces behind inflation or productivity, or
exploring the downsides of wealth inequality. But they face steeper challenges
in extrapolating from political events, especially ones with few or any past
corollaries.

“Forecasters
often feel incentivized to pump up the probability of worst-case scenarios”
said Philip Tetlock, an expert in political forecasting at the University of
Pennsylvania. Forecasters may inflate the probability of disasters, as a way to
increase the salience of a warning, or because they believe that proving
prescient will be something they can boast about, while proving mistaken will
be something most people forget. “Over time, this has some corrosive effect on
trust in the expert community,” he said.

If people start doubting the expertise of experts it will
not be coming a moment too soon. Tetlock does make a salient point: when
experts are wrong people tend to forget very easily; when experts are right
everyone recalls vividly what they have said. The risk/reward ratio for bad
forecasts induces people to forecast calamity.

Amazingly, when experts look into their crystal balls they most often see nothing more than their fattened heads.

How has the Brexit vote worked out? Zumbrun explains:

It’s
now been two months since British voters on June 23 cast their ballots to exit
from the European Union, and it’s becoming unclear if the recession so many
feared will materialize—at least in the near term.

It’s
worth revisiting the level of concern prior to the vote. George Osborne, the
Chancellor of the Exchequer, said a vote for Brexit would cause a “DIY
recession.” In the immediate aftermath of the vote, many market economists
forecast recession
would begin almost immediately.

In the
days after the vote, global stock markets indeed fell sharply. Perhaps if it
had been just a little bit worse, a broader panic would have sent things into a
spiral. Instead, markets have rebounded. The FTSE 100 climbed to near-record
levels by the middle of August.

So much for the experts. We recall their shrieking about the
Brexit vote before and after it happened. In this case the general public seems
to have known beter.

Zumbrun outlines other situations where experts have erred:

Some
economists warned the U.S. congressional budget battles in 2013, which led to
sharp spending cuts known as sequestration, could throw the economy back into
recession. The economy grew 2.7% that year.

Then,
in 2010 and 2012, some economists warned the Federal Reserve’s massive
bond-buying program would cause hyperinflation, soaring commodity prices and a
collapse of the dollar. Nothing of the sort occurred.

Warnings
abounded in 2015 that if Greece rejected an international bailout, it could
spark a sovereign default or a banking crisis or Greece being cast off the
euro. Greece’s economy is far from a success story, but it hasn’t gone
bankrupt. Its banking system has been battered and drained of deposits, but
hasn’t collapsed. It remains in the euro.

Speaking of non-experts, yesterday Donald Trump declared
that the stock market was in a bubble that was being engineered by the Federal
Reserve Bank. The Fed wants to keep things looking rosy until after the
election, Trump said, because it wants to ensure that Obama leaves office with his reputation
intact.

If I had been called on to offer an opinion—I wasn’t—I would
say that Trump is right about this. And that he is simply saying what many
other savvy market watchers are saying in private but would not dare to say in
public. It's not the first time I have heard this view.

Republican
presidential candidate Donald Trump repeated his criticism that the Federal
Reserve has created a"bubble" and an "artificial stock
market" through low rates that were designed to benefit President Obama.

"They're
keeping the rates artificially low so that Obama can go out and play golf in
January and say that he did a good job," Trump told reporters Monday
aboard a flight to Youngstown, Ohio. "It's a very false economy."

The
billionaire added that Federal Reserve Chair Janet Yellen has "done a
political job" and responded to the possibility of a rate hike in
September by saying the low-rate environment has been "created until
January."

Trump
earlier repeated that he "wouldn't be leading" if the unemployment
rate was actually the 4.9 percent that the Department of Labor reports—a
position he has taken since he led the Republican field, although he now falls
behind Democratic presidential nominee Hillary Clinton in many polls.

One might say that the economy is running on fumes. One
might say that the rosy numbers are a mirage masking the economy’s underlying
weakness. On these points and on the notion that he would not be doing so well
in the polls if the economy was really as good as the media and the stock
market suggest, Trump is most likely correct.

But then, if the Federal Reserve is going to raise interest
rates after the election and take away the punch bowl, thus bursting of the bubble, why would Trump want to be president when this
happens? Because you and I know that if Trump or any Republican is occupying
the oval office when the bubble bursts, he will be blamed.

18 comments:

Trigger Warning
said...

Otherwise intelligent people have become mesmerized by computer models. Von Neumann must be laughing his derriere off.

[M]athematical ideas originate in empirics. But, once they are conceived, the subject begins to live a peculiar life of its own and is … governed by almost entirely aesthetical motivations.--- John Von Neumann

The media "experts" have been most amusing in this election cycle, punctuated with their erroneous predictions, violent convulsions and apoplectic hyperventilations about Trump. No one seems to know what is going on, at all. The problem is not that they don't know, it's that they don't care to learn. They're still babbling about how it's all Bush's fault.

There is a difference between predicting a dire outcome predicated on the outcome of a vote, and seeing the writing on the wall. The Brexit panic was entirely political. What's happening to our economy and the world economy is not.

Hanjin shipping has filed bankruptcy, rail car shipments are way down, oil prices are in decline not just because of the availability of excess supply, but predicted demand reductions. Britain may well get their dire consequences but it won't be the result of extricating themselves from a fascist bureaucracy.

Real wages in the US are down (based on the value of a dollar) more than 50% of the people a net negative tax resource. Stock prices climb even when there is no underlying economic reason. At least three different metrics show the market is at least 100% overvalued. The workforce employment numbers are no better today than they were in 2008 and fewer of those employed are actually paying their own way.

Japan has been crippled for decades by Keynesian economic policy, China is in serious trouble, Europe is falling apart. And it's all happening in slow motion. But like all collapses, it's gaining speed.

So yes, experts get it wrong for all the wrong reasons. Rather than listen to them we should be pelting them with rotten tomatoes. But please don't confuse the failure of the immediate apocalypse predicted by self-serving media whores with what's actually happening.

Stuart: But then, if the Federal Reserve is going to raise interest rates after the election and take away the punch bowl, thus bursting of the bubble, why would Trump want to be president when this happens? Because you and I know that if Trump or any Republican is occupying the oval office when the bubble bursts, he will be blamed.

I saw the same quotes from Trump, and I can agree with it partly, except for the partisan conspiracy. And Stuart doubles-down on that sort of cynicism above.

Or at least I see the opposite problem, if Hillary is elected just in time for the great recession of 2017, she'll be blamed, although at least righteously since she'd be representing status quo of Obama's legacy.

So in this regard, the republicans ought to cut their losses and denounce Trump, and pick up the pieces for a 2018 republican landslide under Hillary, and who knows what will rise for the 2020 primaries, but the Democrats will be forced to stick with Clinton, and republicans can walk in any candidate they like, if only a Republican party still existed at that point.

And finally if we imagine Trump (or a Rand or Ron Paul type) getting elected president, and "auditing the fed" or whatever is supposed to break this federal reserve power to destroy all "price discovery" from market economics, then we're still in a 10 to 40 year "overshoot" by various estimates.

So if President Trump listens to grumpy old man David Stockman for instance, perhaps we can create a "controlled collapse" of a bubble economy, and within 20 years, things will start to recover to half of the standard of living we've been used to.

Or we can all worship Allan Greenspan another 5-10 years and hope that we can keep growing the economy on debt, and its still possible, given the U.S. is the unfair world reserve currency where we can't print dollars fast enough to meet demand. Being "last economy standing" is one way of winning.

Still, my personal vote is with Stockman, to land this jet economy flying on fumes, but I have minimal personal risk now. I have no debt, no kids, and am largely divested from consequences, and I can live on a low income, but we're going to elect a Socialist sooner than later if we follow the Stockman path of controlled descent of our bubble economy.

I agree anyway, if anyone else can afford a 20 year depression, probably Trump can afford to lose 90% of his wealth and still come out strong. There will be no Hooverville in his future, unless he owns it.

p.s. Larry Summers sees the Federal reserve as unprepared for a high probability imminent recession, with no clear partisanship, although perhaps he's still pissed off he was side-stepped from becoming Fed chairman, and getting his resume in order for replacing Yellen?

https://www.washingtonpost.com/news/wonk/wp/2016/09/06/larry-summers-the-fed-thinks-it-can-fight-the-next-recession-it-shouldnt-be-so-sure/---I believe that countering the next recession is the major monetary policy challenge before the Fed. I have argued repeatedly that:(1) it is more than 50 percent likely that we will have a recession in the next three years (2) countering recessions requires four to five percentage points of monetary easing (3) we are very unlikely to have anything like that much room for easing when the next recession comes....On balance, I think the Fed’s complacency about its current toolbox is unwarranted. If I am wrong in either exaggerating the risks of recession or understating the efficacy of policy, the costs of taking out insurance against a recession that cannot be met with monetary policy are relatively low. If my fears are justified, the costs of complacency could be very high. The right policy in the near term should be tilting as hard as possible against recession as argued in the first blog in this series.---

Anyone who will allow themselves to be called an expert is of questionable reliability. It has been my experience that most experts don't know what they don't know which makes them dangerous as can be attested to by almost every government that allows experts to make crucial decisions for the economy, healthcare, et al. Many times the over zealous pride of experts leads to very poor decision making and handicaps the creativity of a country's citizens.One only has to look at academe to see a place where supposed experts reside and the fact that bad ideas will only exist in these halls of people who think themselves smarter than others.

The problem of experts is context. When a leader employs experts to get perspective on a decision before him, they can be helpful. But it is the leader who appreciates the greater context and nuance of what he is dealing with, on a human level. This is why putting experts in charge of bigger decisions is a problem. One can only be expert at so much, and with all the information out there, they are likely to be expert at one thing, with a dizzying array of caveats, hedges and conditions. Too many experts means sclerotic, drawn-out decision making. It's depth of knowledge as opposed to breadth of knowledge. All the considerations of depth slow things down, and the essence of what is at stake is lost in the details. Situations are dynamic and fluid, while "analysis paralysis" is opportunity cost. Expertise is tidy because it's based on theory and encourages Stage 1 thinking, because everything occurs in isolation. I've heard that experts are smart, but how smart are you if you can't think further out on the time horizon and evaluate cause-and-effect? There's no context. Experts are experts, and they have relevant information to share, but they shouldn't run anything. There are too many experts running our economy. Trump's comments yesterday on a "false economy" are accurate, and it's because experts have too much power, and it comes at the expense of entrepreneurs and business owners who deal with economic reality, not theory. Experts are a resource, but it's not magic. Who's more important, the entrepreneurs who create the value, or the experts who analyze it? I thought the Soviet experiment taught us something, but apparently not.

IAC, I don't think this is a very controversial opinion:“The United States is and can be a great force for good in the world. But because we’re such a big country, we haven’t always had to know about other parts of the world,” he said. “If you’re in the United States, sometimes you can feel lazy and think we’re so big we don’t have to really know anything about other people.”

Its one thing to be critical of experts, opining badly outside of their expertise, or incompletely replacing reality with their simplistic models, but another to prod people to "look shit up" before they share nonsense someone else shared on Facebook or Twitter, or be curious what a news article is talking about and read more before offering your own opinion.

It would also be nice to have a GOP presidential nominee who also was interested in fact checking before he expresses his deeply felt truths of what or who is wrong with the world.

Trump probably isn't as bad as I project, and we both are interested in security. Probably if he is elected, he'll surely defer to the experts in most things. And yet, then we're back to the first problem of experts and their models.

Anyway, back to Obama, calling people lazy is supposed to shame them a bit into doing better when you know they are capable. Even sports coaches will do that. I don't know if Stuart is willing to call one of his clients lazy.

I might say "passive" is a better word than "lazy", since you might attribute a motive or a character flaw to laziness while passive more implies simply not paying active attention.

The opinion betrays a condescension from this clown president since he came on the scene. Every country has its insularity. America's is greater because of geography. We have a large country, bounded on the east and west by two vast oceans. As much as liberals want us to travel around on trains, this isn't like living in Europe, where you can ride from Germany to Belgium to France -- entirely different cultures -- in an afternoon.

It's not laziness anymore than Obama's worldliness was lazy just because he had a academic mother who married a dude from Kenya and then took Barry with her to her next marriage in Indonesia. She was an anthropologist, for goodness sake. Her JOB was to study other cultures and people. Obama's mother sounds like a bit of a flake, even a head-in-the-clouds gypsy. But she's still his mother, and that is his life experience. But it doesn't mean that his mother's view of the world, or unrestrained interest in it, is somehow BETTER. If that's his view of "worldliness", then I can understand why Obama thinks Americans are a close-minded, bigoted people. Why would he ever want to be president of such a people? Answer that. To bring us out of our self-imposed dark ages? Or so we can all be more like HIM. Lord knows he talks about himself enough!

Obama's job is to lead our country. He sucks at it. Why? Obama thinks he's better than everyone else. Plain and simple. He has to be the smartest person in the room. He is an elitist because of the accident of his birth. I'm really happy for him that his mom was so interested other cultures, but it doesn't make small town life in America any less valuable. Is a plumber from Columbia, Nebraska -- who might never go more than 10 miles from his house in a his lifetime -- a lazy idiot? How can an American president judge his own people like that, while on foreign soil? Ostensibly it's the reason we need Syrian refugees in such towns.

Where does he come up with this ideas that "we don't have to really know anything about other people"? I've never said that. I don't know anyone who says they don't have to know anything about "other people." This president doesn't even know me. I'm sure he thinks I'm a bitter clinger with my guns and religion. If that doesn't betray a cosmopolitan snobbery, then I certainly can appreciate why he finds Trump and Brexit so vexing. He takes no responsibility for anything he does or says. Ever!

I don't need Obama shaming me, nor does anyone else. Maybe he should look at himself before bloviating about this and that. He's shameless. And he does not think nor act like an American, which makes him a foolish American president. When was the last time you saw an American president flying all over the earth apologizing for his own country and talking about how small and foolish his own people are? This man is an embarrassment.

He's not an expert in anything. He has virtually no employment past. No one from his past remembers him. He's never worked for anything he has. And he scolds entrepreneurs with "You didn't build that..." He's never built anything! He can't even build a website to house his namesake healthcare exchange that's been a total failure.

Lazy? This from a guy who has created an economy with the lowest labor force participation, 0% interest rates that fuel the wealth of rich people he supposedly despises, and empowers whole industries through subsidy and graft. His whole political philosophy breeds laziness.

One of the Four agreements is "Don't take anything personally."http://www.toltecspirit.com/

You clearly are taking things personally, admittingly that's human, but its also something to look at and consider it is your problem, not Obama's. He's clearly a good scapegoat for you, so I understand why you'd not want to reconsider the causes of your projecting.

And I'm also reminded Conservative jerks make fun of liberals all the time, in much less subtle ways that gentle prodding, so I imagine trying to prove their superiority. And its true, Americans are easy targets. Most just don't pay attention to politics or the world.

On ignorance, Gary Johnson was shamed this week for not knowing what Aleppo was, and asking back "What is Aleppo?" thinking it was some obscure acronym.http://www.nytimes.com/2016/09/09/us/politics/gary-johnson-aleppo.html

I admit the world is a vast place, and no mere human can be an expert on all subjects, or even a small subset, and yet a democracy (or a voting republic as you like) needs citizens with some understanding of the facts, if they're using those facts to make opinions on who to vote for.

So even an ignorant Trump might be educatable in reality, if he happens to pick a good set of advisors. We can all hope that ignorant people can pick an ignorant leader, who will listen to experts.

Anyway, I'm proud I voted for no-drama Obama, for all his missteps, and wish our next president could be as boring while paying attention to so many diverse challenges. I'd like to compare to the alt-world where we didn't bail out everything to keep the economy spiked on cheap debt, but I'm sure Obama would be blamed for that world in much harsher ways. The U.S. simply has too much power and affluence to let a few trillion dollars in bad loans sink our economy.

And if Trump wins a squeeker 46-46 election over Hillary, I'll agree as a country we've picked a new path, and we'll find out if Trump's "Only I can fix it" is true. Of course no one expects he can fix anything. I imagine his supporters merely want to lash out at wealth disparity by giving a wealthy man the White House.

Minnesota survived 4 years Governor Ventura and I think he got his snowmobile license fees reduced, so true mavericks sometimes can change the world for the better.

And I can hope there's at least half a chance that Trump will be less of a military hawk than Hillary, even for all his pandering to double our military budget without raising taxes. The optimal military is flush with money, but keep everyone at home in a proper home defense. That's a win-win for everyone.

"Anyway, I'm proud I voted for no-drama Obama, for all his missteps, and wish our next president could be as boring while paying attention to so many diverse challenges. I'd like to compare to the alt-world where we didn't bail out everything to keep the economy spiked on cheap debt, but I'm sure Obama would be blamed for that world in much harsher ways. The U.S. simply has too much power and affluence to let a few trillion dollars in bad loans sink our economy."

I don't even know where to start, so I won't waste my time. Your ignorance is astounding.